Let's say you enter the withdrawal phase with a moderately conservative AA.
Is there a case to be made for then allowing allocation drift (not rebalancing) for the remainder of retirement?
From a stock:bond perspective, you would:
(1) limit downside risk during early retirement
(2) end up with a reverse glidepath during equity bull markets
I took a look at this for 50/50 (US only) with 2000, 2008, and 2022 start points.
2000: lowest equity allocation hit was ~30% (in 2003 and again in 2009)
2008: lowest equity allocation hit was ~37% (in 2009)
2022: lowest equity allocation hit was ~48% (in 2023)
If withdrawing 4% of the initial portfolio balance annually (adjusted for inflation), the portfolio value never fell more than ~26% from initial value (in 2009). Of course, if we were to experience an 80% equity drawdown, that would be more like a 40% portfolio drawdown.
With the 2000 start date (two major equity drawdowns), the no-rebalancing portfolio made it back to the original AA in 2017, with the portfolio value fluctuating just at initial value to 15% under (with the exception of the 2021 and 2024 bull bumps).
So even if there was an 80% equity drawdown, isn't it likely that the portfolio value would hover somewhere around 60-80% of initial value following that? And even if there was simultaneously a 20% drawdown in bonds, you're probably still looking at staying in a range of 50-70% of initial portfolio value as a worst case (barring extremely high inflation that makes the nominal value of your portfolio mean nothing)?
Thoughts?
Is there a case to be made for then allowing allocation drift (not rebalancing) for the remainder of retirement?
From a stock:bond perspective, you would:
(1) limit downside risk during early retirement
(2) end up with a reverse glidepath during equity bull markets
I took a look at this for 50/50 (US only) with 2000, 2008, and 2022 start points.
2000: lowest equity allocation hit was ~30% (in 2003 and again in 2009)
2008: lowest equity allocation hit was ~37% (in 2009)
2022: lowest equity allocation hit was ~48% (in 2023)
If withdrawing 4% of the initial portfolio balance annually (adjusted for inflation), the portfolio value never fell more than ~26% from initial value (in 2009). Of course, if we were to experience an 80% equity drawdown, that would be more like a 40% portfolio drawdown.
With the 2000 start date (two major equity drawdowns), the no-rebalancing portfolio made it back to the original AA in 2017, with the portfolio value fluctuating just at initial value to 15% under (with the exception of the 2021 and 2024 bull bumps).
So even if there was an 80% equity drawdown, isn't it likely that the portfolio value would hover somewhere around 60-80% of initial value following that? And even if there was simultaneously a 20% drawdown in bonds, you're probably still looking at staying in a range of 50-70% of initial portfolio value as a worst case (barring extremely high inflation that makes the nominal value of your portfolio mean nothing)?
Thoughts?
Statistics: Posted by Beensabu — Fri Sep 27, 2024 1:49 pm — Replies 8 — Views 416